We talk a lot about Decentralised Finance (DeFi) on this. I had a chat with a great team actually working in this space, Tom and Kyle from the bZx Network.

Colin (CP): Thanks for joining us, big fan of what you guys are building. Can you tell our readers a bit about who you are?

Kyle (KK): I’m a co-founder and operations lead at bZx. I have a MSc in Computational and Molecular Biology, and got into blockchain in 2011. I started doing a PhD but then left to start working on bZx.

Tom (TB): I’m the founder and CEO at bZx Network. Prior to bZx, I worked for Nokia where I lead software teams, and was a developer before that.

CP: Thanks, can you talk to us a bit about what bZx is, and tell us about your journey?

TB: We originally founded bZx in 2017 after reading the 0x, Kyber and Bancor whitepapers, the first idea was to decentralise margin trading. After watching Bitfinex’s hacking issues we saw a real need in the market. We wanted to help people earn interest on their assets like on Bitfinex, but without putting them at risk on a centralised platform, by using a smart contract. We looked at doing it on Bancor, but decided that Kyber was a better fit as it offered secured price feeds. One early idea was looking to offer the 0x of margin and had considered that bZx could be a protocol play as well.

KK: Since we went to mainnet in 2018, we started to work with 0x relays, and then spoke with the team at ETHFinex, who were working on decentralising the orderbook. Spoke with them a lot about their ideas in late 2018. By that time the trend was moving away from protocols and platforms, and towards productizing. 0x relays were all trying to get liquidity on the spot market and really didn’t have bandwidth to work on margin.

CP: And how did you ultimately take those learning to build your current products?

TB: We looked beyond the decentralisation of orderbooks, and thought about how the lending positions themselves could be tokenised, which brought us to the iTokens that we now offer.

KK: One of our products, Fulcrum, allows you to earn interest by buying iTokens. We also have a platform, Torque, which allows you to borrow on an overcollateralised basis. It was purposely designed to be super easy. In addition to using our frontend, you can borrow directly from My Ether Wallet with 3 clicks. We’re now working on creating protocol that handle a number of more complicated market order types.

CP: You talked about “product”, which is a trend that I find really promising. Can you talk to me about how you made the pivot towards this?

TB: Really we could have been even faster on this, projects like Dharma, dYdX, and Maker all went for product early not, not just marketing a protocol. Almost every successful company at this point leaned in to products, with the notable exception of 0x.

CP: So we’ve talked about “DeFi”, what does it mean for you?

TB: I think that the name is self-explanatory. Finance is the transmission of money, so DeFi is that but somewhat decentralised. Well, at least one component is decentralised. First thing generally decentralised is custody. If you don’t have that, usually it doesn’t pass the bar of the core DeFi proposition. There is also an almost parallel movement towards “open finance” as well, but we regard that with some suspicion. People finding this idea more attractive are generally not using decentralised components.

CP: Outside of what you are doing, what excites you?

KK: Derivatives and stablecoins are exciting. 2019 was the year of the stablecoin, Maker being a big part of that success. Synthetix, Augur and UMA are still very interesting. Synthetix got a lead on the market because of smart business decisions. Starting with a credible product and slowly decentralising the control. Others are going the longer route, sticking with decentralisation. We expect more competition here.

CP: Talk to me about some of the risks in DeFi

TB: One of the more obvious ones is smart contract risks, doing good audits is important, some are moving so fast that they haven’t conducted these yet. With smart contract risks though, people aren’t talking about it with enough granularity yet, they view any code change as a single risk. Small changes versus completely fusing code is seen as the same level of risk, even if they are quite different in reality. There are different magnitudes of risk between Chai (which was developed by the same people that created MakerDAO’s Dai Savings Rate, “DSR”), and changes to the underlying code. People just look at lines of code, rather than the number of platforms involved.

There are also risks around network congestion. This could be the largest risk for lending based businesses. Making sure that there are redundancies in the liquidation mechanisms and that you can have throughput to handle the volumes is key here. As an example, Nuo suffered a loss because they were the only ones able to trigger liquidation. Each transaction needed to liquidate in succession, but other designs allow anyone to call liquidations can allow for more redundancy and reduce risk.

KK: One big trend that is not talked about alot is that all the current lending protocols are not competitive with Maker in their current state. Maker offers 6% DSR and supply rate. All other protocols rely on automated market makers. That means that the spreads are pretty big, and can be up to 25-50% of rate. If you want the lowest rates, there is really no reason to use a platform other than Maker at the moment.

CP: So are the Compound model and the DAI market obsolete?

TB: Not entirely, there is borrowing and lending, but as long as there is zero spread on Maker it’s hard to compete with it. Addressing traders who are less sensitive to interest rates is one route, whereas normal borrowers are more sensitive to interest rate levels. We really need some level of greater attractivity on lower liquidation penalties and lower maintenance margins to stay competitive.

CP: Guys, thank you very much, that was super interesting and taught me a lot about the DeFi lending space. Please keep up the great work you’re doing.

TB: Thanks for having us, this was fun.

KK: Yes, thank you, good speaking with you.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

While last month I refused to give my 2020 predictions, which would invariably be wrong, and opted to be different by looking back at blockchains in 2019, even that was wrong as it seems that literally everyone did the same thing. So, I hit up Zeth Couceiro and Shaun Potts, the founders of Plexus –and very generous patrons of this blog– to see if they could offer more accurate, or at least a more entertaining forecast of things to come this year.

Colin (CP) – Hey guys, thanks for finally accepting my invitation to take time out of doing real work to join me and talk about blockchains. Can you give us your one-line intro?

Shaun (SP) – Hi, thanks for letting us come on our own blog. I’m Shaun Potts, co-founder of Plexus and the self-styled most cynical man in crypto.

CP – Cynics in this industry have a lot of competition Shaun, a lot of competition…

Zeth (ZC) – Zeth Couceiro, I got into blockchain in 2015, and have loved it ever since. I guess that I’m like a lot of people that got into this space relatively early, and am naturally forever optimistic about the future of crypto. I consider myself pretty lucky to do a job that I love in an industry that genuinely interests me.

CP – Well now that we have our intros out of the way, readers will know that you two will both take opposite sides of literally any bet in crypto and one of you will be right when we tally things up at the end of the year. But let’s set the scene, what surprised you most in this industry in 2019?

SP – I think the thing that surprised me most was, and is, the hype around DeFi. It’s gotten completely out of control. We have products and processes built by geeks and used exclusively by geeks. If we look at the real world there is no one actually using it, and few who even get it. I’m not sure that there is even a reason that they should try. I think that there is also a massive systemic risk that Ethereum dies and takes the entire ecosystem, as well as people’s money, with it.

ZC – Hard one to top there. We came out of 2018 in the depth of the doom and gloom cycle, and I personally expected 2019 to be the year that we started to gain a lot of traction amongst the larger protocols tokens, as well some of the Ethereum challengers. This didn’t really happen, however, and if anything, we’ve seen the interests start to move back to private and permissioned ledgers. The second thing is, despite all the talk about institutional money coming to crypto, we’ve not really seen anything meaningfully change.

CP – I can tell that this is going to be juicy already. Let’s dial it up, rapid fire some predictions for 2020 guys. Let’s start with our friends doing enterprise.

SP – Corda will take the main stage as the de facto industry standard for enterprise blockchain, and the others will be relegated to “also ran” status.

ZC – On enterprise, I think that we’re due for another cycle of “bitcoin bad, blockchain good”. 2020 could be the year that crypto and blockchain finally formally separate from each other.

CP – Nice. For the purposes of tracking this in December, Shaun is bullish on Corda, and Zeth is predicting that the bankers come back for a FUD session on Bitcoin. How about some thoughts on coins?

SP – I’m going to take this one. I’m putting my stake in the ground that Ethereum 2.0 won’t happen this year, and Bitcoin will hit an all-time high by the end of the year.

ZC – Just tally up Shaun’s points on this one.

CP – Ok, so sounds like Shaun is short ETHBTC. Zeth, give me some thoughts on the business trends you’re expecting around the space.

ZC – We’ve already started to see it happen, but I think that acquisitions will be a big story in 2020. More broadly on the talent side of things, engineering will always be a high priority for clients, but I think that we’ll start to see more growth in UX and Sales skills this year.

SP – I like those predictions.

CP – As do I, but they’re going to be a pain to monitor when I do a follow-up on this.

SP – Yeah, maybe don’t track them, as they’ll all be wrong.

ZC – Yeah, I’m 100% with Shaun on this, I don’t have a great track record on my predictions.

CP – Don’t care, I’m keeping score. How about a tangible and friendly bet at least?

SP – Short ETH, Long BTC!

ZC – Long everything….well….not everything. I think the market looks at crypto as BTC and ETH but I think in 2020 we will start to see the likes of Chainlink, Maker, Iexec and Basic Attention Token gaining notoriety. All of which seem to bridge the gap between the crypto world and the real world.

CP – Alright, I guess that I’ll take that. Shaun is on the Bitcoin maximalist trade, and Zeth is short the Bitcoin dominance metric. Loser buys me beers in 2021.

ZC – Colin, you know what? We should actually get other people in on this.

SP – Good idea, drop us a note on Twitter @PlexusRS or LinkedIn and let us know what you think.

CP – Love it, the winner gets to join the blog and share their victory! Thank you so much for joining us guys. I look forward to seeing these things play out.

SP – Thank you, it was fun.

ZC – Thanks and for those reading don’t forget to tell us what you think will happen!

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.